Nur Mazhariya Ulmi

Chapter 12

1. The main disadvantage is that it can lead to both rent seeking and
beggar-thy-neighbor policies, which can increase one countrys
welfare at the other countries expense. Such policies can lead to a
trade war in which every country is worse off, even though one
country could become better off in the absence of retaliation. This is
the danger in enacting strategic trade policy: it often provokes
retaliation, which in the long run, can make everyone worse off.
2. A valid reason for supporting high-technology industries would be
that they generate technologies that benefit the whole economy.
The value to the whole economy of this aspect of the
hightechnology firms existence exceeds the benefits to the firms
themselves, and there will be too little expansion of these firms from
a social point of view. Other stated benefits are not valid reasons for
industrial policy since the market provides incentives for the
realization of these benefits. The protection from foreign
competition is also a spurious argument since, as has been shown in
previous chapters, the economy as a whole benefits from cheap
foreign high-technology goods. The exception being if the industry
provides monopoly rents and the foreign government is trying to
capture these rents for its home economy.
3.
4. Advantages to such policies are obviously that some workers are
able to enjoy higher standards in the workplace. The disadvantages
with such policies are that they may serve as a deterrent to
employment creation in developing countries as costs increase to
producers of locating manufacturing in these countries.
Policymakers have to weigh a trade-off between insisting on
decency in working conditions, with imposing standards of the

already industrialized countries on the developing world, as these

policies may cost large numbers of jobs in manufacturing in
developing countries
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